Tuesday, May 19, 2009

LETTER BOX: Debt relief is no easy accomplishment!

Elizabeth Daly: Debt relief is no easy accomplishment; countries have to abide by strict requirements in order to become eligible. To qualify for the Heavily Indebted Poor Countries Initiative (HIPC) of the World Bank (WB) and International Monetary Fund (IMF), a country must be poor and highly indebted, having total debts worth more than 150% of exports or more than 250% of government revenue. This was the case for Guyana prior to 1992.

It was necessary for Government to seek other avenues and shift from the traditional debt relief programmes since they were worthless. To reach the first benchmark, called “decision point,’ a country must implement an IMF economic programme for three years, develop an interim Poverty Reduction Strategy Paper and clear any outstanding arrears. Upon reaching decision point, a country receives debt relief in the form of lower debt service payments.

In order to reach completion point, countries must establish a Poverty Reduction Strategy Paper (PRSP) and be “on-track” with the conditionalities outlined in an IMF “Poverty Reduction and Growth Facility” (PRGF) loan. The approval of the IMF is critical: if the IMF declares a country “off track” in its PRGF programme, it cannot reach completion point and its interim debt relief is suspended, meaning that the country’s level of debt service increases.

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